Design-Build Goes Mainstream

The design-build project delivery method, for years considered the Tinker Toy division of general contracting, is transforming the commercial construction industry. Attracted by guaranteed prices and substantial cost and time savings, commercial construction clients are using design-build to develop more than a third of all buildings today, up from less than 10% a decade ago.

And design-build is gaining the respect of the industry. Ten years ago, design-build customers primarily wanted office or distribution structures of vanilla, boxy architecture. Today's customers are using design-build to create all building types. According to the 2003 Design/Build Survey of Design and Construction Firms, a publication released by Natick, Mass.-based design and construction consultant ZweigWhite, design-build is being utilized on projects ranging from corporate offices to public sports arenas.

“We're seeing projects of all sizes, shapes and complexities,” says Jeffery Beard, president of the Design-Build Institute of America in Washington, D.C., an organization that promotes the design-build industry. “That tells me that anything that can be designed can be design-built.”

Some architects, however, question whether design-build fosters quality. Design-build gives design oversight to contractors, who generally focus more on budgets than architecture, critics say. “There's a place for design-build,” says Eugene Kohn, chairman of Kohn Pedersen Fox, an international architectural firm based in New York. “But we much prefer to work with owners to achieve design and then work with a contractor to meet a budget.”

Nevertheless, the design-build firm's sole project responsibility is a major force behind the delivery method's growing popularity, says Jim McShane, CEO of the McShane Cos., a design-build firm based in suburban Chicago. If a problem occurs in the design-bid-build process, owners may get stuck between feuding architects, engineers and contractors. Not so with design-build, he says, “It gives the owner one source to go to if there's a problem.”

An Effective Incentive

Regis Homes of Northern California and TMG Partners are among the latest design-build converts. In December, the developers, who have partnered for the first time, broke ground on The Crossing/San Bruno, a $68.7 million, 300-unit apartment complex on former Navy land near San Francisco. Early in the planning process Regis Homes, based in Foster City, and TMG, in San Francisco, were competing against developers of other projects statewide for a limited amount of California tax-exempt bonds to fund The Crossing/San Bruno. Regis Homes and TMG wanted to avoid paying more than $2 million in fees for construction drawings before even knowing whether they would be able to obtain financing.

So, they paid an architect less than $500,000 for preliminary drawings, then hired Devcon Construction in Milpitas, Calif., as their design-build firm. Devcon used the initial designs to provide a guaranteed maximum price for the project, which is a central design-build principle. Regis and TMG then secured financing. “Design-build is not our norm,” says Drew Hudacek, vice president of Regis Homes. “But by going design-build, we were able to quantify our construction costs and lock in financing in a short window of time.”

Not only have the developers avoided risking $2 million upfront, they also anticipate saving potentially millions of dollars in change-order costs as construction proceeds. Change orders occur when alterations to a building design are made, which frequently lead to changes in building materials and construction timelines. The problem has become synonymous with the design-bid-build process, say industry experts, and on average change orders add nearly 5% to a project's cost.

In the case of The Crossing/San Bruno, the design-build method has another added benefit: Regis Homes and TMG will open their apartment complex in spring 2004, about six months sooner than they would have under a conventional design-bid-build schedule, Hudacek says.

Construction Evolution

Design-build represents a substantial departure from the conventional design-bid-build project delivery process. In design-bid-build, building owners hire architects to design buildings and then put them out for bid to contractors. During the construction process, the architect continues to represent the building owner. In design-build, the building owner, general contractor and architect generally collaborate from the project's earliest stages to generate designs and establish costs. The architect answers to the contractor, who is in charge of the entire project, including the design.

The construction management method includes elements of both processes: architects design buildings and oversee the designs throughout construction. Construction managers, on the other hand, oversee general contractors and ensure that they're meeting the owner's budget.

According to a study conducted in the late 1990s by the Construction Industry Institute in Austin, Texas, and Pennsylvania State University, design-build results in cost savings of at least 6% compared with the conventional design-bid-build project delivery method.

Victor Sanvido, the study's principal investigator, says he has seen documented cost savings of up to 40% as a result of the design-build process. However, Sanvido believes the design-build delivery system can fall short of expectations if the construction firm runs the project as a design-bid-build endeavor. Typically, that happens when contractors bid out work to subcontractors later in the design process rather than hire subs during early design work, says Sanvido. He is now vice president of systems and operations for Southland Industries in Irvine, Calif., a mechanical systems engineering firm that focuses on design-build projects.

Rewards for Risk

The added risk design-build firms assume by guaranteeing price is worth a couple of extra percentage points in profit margin. Design-build contractors typically charge fees of 4% or 5% of a project's cost, while contractors doing design-bid-build work charge 2% or 3%, says Dave Moses, executive vice president and partner of Clayco Construction Co. in St. Louis, a design-build firm.

Design-build's delivery speed generates much of the dollar savings, says Collin Barr, vice president of development for the design-build firm of Ryan Cos. U.S. in Minneapolis. The company completed a $77.4 million, 360,000 sq. ft. Minnesota Department of Revenue office building in 13 months using the design-build method — about half the time government projects take under other methods. Consequently, the number of interest payments the State of Minnesota would have paid on its bond financing was cut in half, saving the state about $1 million.

Jay Marr, vice president of development for Higgins Development Partners in Chicago, says design-build shaved three months off of a typical design-bid-build schedule on a $20 million, 573,000 sq. ft. packaging and distribution plant in Dixon, Ill. Higgins developed the facility for Rayovac, which moved in March, and hired McShane as its design-builder. The delivery speed not only eliminated three months of extra cost related to carrying the land, but it also allowed Higgins to begin collecting rent sooner.

Design-build's delivery speed also is benefiting Citigroup. Clayco is building a $50 million, 515,000 sq. ft. office building near St. Louis for CitiMortgage, a subsidiary. Mike Pallmann, senior project manager and vice president with Citigroup, anticipates moving into the building in August, about eight months ahead of a design-bid-build schedule.

Design-build enabled Clayco to start construction while still designing interiors, which sped up the delivery process, says Pallmann. Citigroup would have had to wait for complete interior designs before beginning construction using the design-bid-build method.

Constructive Criticism

Nobody disputes design-build's delivery speed, though some construction experts challenge the growing perception that design-build is a silver bullet that works best for all projects.

The method works well for owners who know what they want or who have a cookie-cutter design for chain stores, for example. But its benefits evaporate on complex projects tough to conceptualize, says Roger Lang, senior vice president of pre-construction services for Turner Construction in New York.

Citigroup's Pallmann adds that owners need to either specify the criteria of a building's operating systems or ensure that the criteria outlined in the design-build contract meet their needs. “If you're not specific about what you want,” he says, “you're not going to get a Cadillac, you're going to get a Chevrolet.”

What The Future Holds

The increasing number of design-build users has fueled a jump in the number of design-build firms. The Design-Build Institute of America has experienced double-digit membership growth most years since its inception in 1993 and lists 973 members. Institute officials predict design-build will be the most-used commercial construction method within 10 years.

While design-build companies like Clayco, Ryan Cos. and McShane have done about 90% of their work in the design-build arena, even conventional contractors are securing more design-build work. At Hensel Phelps in Greeley, Colo., for example, design-build work accounted for about 36% of the company's $1.9 billion in revenues last year, while 10 years ago design-build work was virtually non-existent, according to a company official. Design-build also was non-existent at Turner Construction 10 years ago; last year it accounted for 10% of its $6 billion in revenues, Lang says.

Architectural firms have a different experience. Officials with RTKL Associates and Kohn Pedersen Fox Associates say that design-build work generally has accounted for between 5% and 10% of their work on an annual basis over the past several years.

KMD Architects, on the other hand, has seen its design-build work increase to 25% of its projects from less than 10% a decade ago, says David Hobstetter, a director at KMD in San Francisco. “Design-build is a fact of life,” he says, “and architects need to address it in a way that serves the architectural client and construction industry the best way possible.”

In some cases, contractors have established in-house design teams. Although such arrangements are commonplace, some architects wonder whether those designers can maintain their independence. “Maybe architects aren't questioning the things a contractor is doing, because when architects move into a contractor's house, they start acting like a contractor,” says Lance Josal, senior vice president with RTKL in Dallas.

Independent architects teamed with contractors on design-build projects face similar challenges, adds Eugene Kohn of Kohn Pedersen Fox. Because contractors control the design, he says, “it makes it more difficult for the architect to have influence over the quality of the product.”

Chris Cedergreen, president and senior principal of Forum Studio, Clayco's in-house architectural firm, disagrees. Working with contractors from the beginning of a project enables architects to test a design's intentions and systems throughout the design and construction process, he says. That generates immediate feedback, and allows architects to quickly design solutions. “It's not a limiting factor at all,” he says. “It adds to the design process.”

Joe Gose is a Kansas City-based writer.

Definition of Project Delivery Methods

Project Delivery Method

Definition

Design-Build

Project owner, architect and general contractor collaborate on design. Contractor guarantees price, is responsible for design and answers directly to owner.

Design-Bid-Build

Owner hires architect, who designs building. Designs put out for bid to contractors. Architect represents owner during construction. Owner may have to pay for design changes.

Construction Management

Architect designs building for owner, project bid out to contractors. Owner hires third-party contractor to oversee firm's work. Owner may still have to pay for design changes.

Construction Management At-Risk

Similar to construction management, but construction manager also serves as contractor. Gives owner guaranteed price.

Most Common Markets for Design-Build Work

The percentage of work that is done using design-build is among the highest in the power/communications market.*